Personal Finance

Commodities are used to produce other goods and so are traded forward using derivative

contracts.

Derivative contracts can be used to hedge an investment in an asset, or to speculate on the price

volatility of the commodity.

Because of their volatility, commodities markets are riskier than asset markets.

Precious metals, especially gold, are often used to lower portfolio risk by providing a hedge

against inflation.

Individual investors can invest in commodities using index funds and exchange-traded funds.

Collectibles and unique assets may appreciate in value, acting as a store of wealth, but the

disadvantages of using them as investments are

o high probability of mispricing,

o illiquid markets, o illiquid returns or no returns until the asset is sold,

o holding period maintenance costs.

EXERCISES

View Bloomberg’s commodities and futures charts

athttp://www.bloomberg.com/markets/commodities/cfutures.html. Choose one or two

commodities to track and find out all you can about investing in those commodities. Read an

article on how to read a commodities price chart athttp://www.thegraintrader.com/chart-

patterns/how-to-read-a-commodity-price-chart.html. Create an annotated drawing to apply the

information about reading a commodities chart to an example of a chart taken from the

Bloomberg’s Web site. Write an interpretation of the chart in My Notes or your personal finance

journal.

Read Investopedia’s article on investing in gold and silver

athttp://www.investopedia.com/articles/optioninvestor/06/goldsilverfutures.asp. According to

this source, who should consider investing in gold and silver and for what reason? What are

examples of other precious metals in the futures market? How do investors offset futures

contracts before their delivery dates?